New from Prudential: Level Term Life to Age 65

The term “trust fund” might elicit an image of a spoiled rich kid living off their parent’s money.

In reality, many parents use the proceeds from life insurance to fund a trust that provides financial payments to their children while limiting their ability to spend it all at once.

Families who want to provide for heirs can put certain stipulations in place to control how and when the proceeds from the fund will be distributed.

“Trusts allow you the option to gather up your resources and split them equally among your kids without a tax penalty,” explains Marc Belletsky, Director of Estate and Business Planning for The Hartford.

A policyholder who doesn’t want certain assets or funds included in their estate may also establish a trust.

“They’re money-machines that exist outside of the estate that can be used to help pay estate bills after death,” says Belletsky.

Trusts are also helpful if you have a child with mental disabilities that prevents them from being self-sufficient and earning a regular income. Through its creation, a trust can ensure your child receives regular financial support beyond you or your spouse’s lifetime.

You could even set up a trust to provide gifts to charitable organizations or seize assets from a spouse to prevent them from being given to another person if they remarry.